Is Oil Heading Lower? Not So Fast Says RBC

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By Robert Guy

Both Brent and West Texas Intermediate oil prices are down around 19% from their early June highs and this has some analysts thinking crude could be set for an encore performance of its weakness in the second half of last year.

But RBC Capital Markets reckons don’t count on history repeating;

The comparison is faulty. Last year’s rally and subsequent dive was premature and fundamentally baseless. Variables that had large bearish implications heading into this year (such as the path of both Iranian and US production, which were unknown at the time) have since become visible. As we have noted over recent weeks, near term hurdles (such as the gasoline inventory glut) need to be cleaned up (economic refinery run cuts in addition to scheduled fall maintenance) to pave the way for a structural move higher in prices. In our view, the price trajectory is indeed higher, but speed bumps in the form of producer hedging and elastic US supply (at higher price levels) will ensure that the path is a choppy one.

Some of Asia’s bigger energy stocks haven’t proved immune to the weakness in oil prices, with Hong Kong-listed CNOOC (883.HK) and Australia’s Woodside Petroleum (WPL.AU) down around 4% from early June, while Hong Kong-listed PetroChina (857.HK) is down 8% and Japan’s Inpex (1605.JP) has fallen 10%.